AGY’s announcement that its Wagener Road plant will add 80 new jobs within the next five years is good news. Given Aiken County’s anemic economic performance in recent years, this small addition to the local manufacturing base is a welcome development.
As detailed in the “Regional Economic Benchmarking Report for Aiken County – 2015 Update,” the county’s economic indicators haven’t fully recovered from the recession. Adjusted for inflation, our community has seen stagnant per capita income, falling wages and declining retail sales.
With the unemployment rate improving from 9.4 percent in 2009 to 7.0 percent in 2014, why is the local economy not performing better?
Two factors are at play. First, the decline in the labor force participation rate – as measured by the steady size of the county’s labor force against the county’s growing population – is driving much of the reported drop in the unemployment rate.
As the benchmarking report noted, “a good portion of the improvement in unemployment rates has been due to a reduction in the LFPR, as discouraged workers drop out of the labor force.”
Mathematically, the unemployment rate is falling with the relative decline in the size of the labor force.
Second, and more decisively, newly created jobs are generally lower-paid versus the jobs lost during the recession. And with lower wages, personal income shrinks, consumer spending drops and taxpayers must foot larger tax bills as diminishing wages fuel increasing demands for government services.
The relative share within the local economy of several highly compensated job sectors has fallen since 2002. These include jobs in the professional and business services (average salary $72,731 in 2014), manufacturing ($58,029) and construction ($58,273) sectors.
In contrast, job growth is concentrated in lower-paid sectors. These include education and health services ($34,872), trade, transportation and utilities ($29,583), and leisure and Hospitality ($13,549). This last category, which includes restaurant and hotel workers, is extremely low paid since many of these are part-time jobs.
In a nutshell, with employment leveling off at the Savannah River Site, our local economy more and more resembles that of post-industrial America.
Within this context, the expansion at AGY is a step in the right direction.
AGY will invest $30 million in its Wagener Road expansion. This project is incentivized with a fee-in-lieu of taxes agreement with Aiken County. Under this agreement, property taxes will be locked in at current rates for 20 years based on a 6 percent property tax assessment ratio. This is a significant reduction against the standard 10.5 percent assessment ratio for industrial plants.
(In comparison, property taxes on owner-occupied homes are based on a 4 percent assessment ratio.)
This use of property tax incentives for industrial development is sound policy. By circumventing South Carolina’s counterproductive 10.5 percent property tax ratio on industrial property, the tax base is reinforced. When applied intelligently, and with objectively applied criteria, tax incentives are powerful economic development tools.
Jobs created through industrial incentives typically require greater skills and pay higher wages than many non-manufacturing jobs created since the recession.
Strategically, an aggressive focus on industrial development, generating real physical goods and bringing private sector dollars into Aiken County, will shore up our standard of living.
This strategy also brings additional downstream benefits. With a sound manufacturing base, and with more money in employees’ pockets, the marketplace will be better equipped to provide expanded retail, housing and entertainment opportunities. Tax Increment Financing districts would become redundant, if not counterproductive.
In pursing industrial development, local governments need not pick economic winners and losers. They could focus instead on the maintenance and judicious expansion of public infrastructure. Governmental pump-priming is limited to the creation of a hospitable manufacturing environment.
But an even more visionary economic development model would holistically improve the economic environment for all manufacturing firms, both large and small.
Amending the South Carolina Constitution to reduce the 10.5 percent property tax ratio for industry will assist not only large out-of-state companies seeking to relocate into Aiken County, but also smaller, home-grown firms. Tax rates enjoyed by the giants must be made available to startups and mom-and-pop operations.
Fairness and economic opportunity demand nothing less.
Gary Bunker is a former member of Aiken County Council.